Depletion of Oil and Gas Property

Depletion allowance figured by partnership. For partnership tax years beginning after 1997, an electing large partnership, rather than each partner, generally must figure the depletion allowance for the partnership's oil and gas property.

Suspension of taxable income limit. For tax years beginning after 1997 and before 2000, percentage depletion on the marginal production of oil or natural gas is not limited to taxable income from the property figured without the depletion deduction.

Marginal production. This is domestic crude oil or domestic natural gas produced during any tax year from a property that is either of the following.

• A stripper well property for the calendar year in which the tax year begins. Property for which the production is 15 barrel equivalents or less is a stripper well property. To figure the barrel equivalents, divide the average daily production of domestic crude oil and domestic natural gas from producing wells on the property for the calendar year by the number of wells.
• A property from which substantially all of the production during the calendar year is heavy oil. The term heavy oil, in this situation, means domestic crude oil produced from any property if the crude oil had a weighted average gravity of 20 degrees API or less (corrected to 60 degrees Fahrenheit).

More information. For more information on depletion, see chapter 13 in Publication 535.

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